AO power to extend time for submission of special audit report u/s 142(2A). Power of suo moto extension was inserted from 01-04-2008 only-Delhi HC

AO power to extend time for submission of special audit report u/s 142(2A). Power of suo moto extension was inserted from 01-04-2008 only-Delhi High Court

AO power to extend time for submission of special audit report

ABCAUS Case Law Citation:
ABCAUS 1237 (2017) (05) HC

The Question framed for determination:
Did the ITAT fell into error in holding that the assessment order for AY 2003-04 was time barred given the pre-condition Clause (iii) of Explanation (i) to Section 153 (1) of the Income Tax Act which led to the amendment to that provision by Finance Act No. 2 Act of 1996

Assessment Year : 2003-04
Date/Month of Pronouncement: May, 2017

Important Case Laws Cited relied upon:
CIT v. Bishan Saroop Ram Kishan Agro (P) Limited
Madhya Pradesh High Court in CIT v. Dhariwal Sales Enterprises
VLS Finance Limited v. Commissioner of Income Tax

Brief Facts of the Case:
The return of the responding assessee was picked up for scrutiny and notice was issued to the assessee under Section 143 (2) of the Act. The Assessing Officer (“AO‟) directed the assessee to get its accounts audited under Section 142 (2A) of the Act within a period of 35 days. Thereafter, several extensions were granted by the AO; for 45 days, further 30 days, further 10 days and further 7 days. As a result of these extensions, the due date for furnishing special tax audit report fall on 7th July 2006. However, the special tax audit report u/s 142(2A) could not to be submitted by that date. Nevertheless, the report of the Special Auditor dated 7th July 2006 was sent under covering letter dated 12th July 2006 to the Commissioner of Income Tax and received by the AO on 17th July 2006. On the letter dated 12th July 2006 of the Auditor, the AO made an endorsement dated 13th July 2006 suo moto extending the time for submission upto the date on which the auditor‟s report was actually received i.e. 17th July 2006. The AO framed the assessment order on 17th September 2006.

Aggrieved by the assessment order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [“CIT (A)”] who allowed the appeal observing that the audit report was required to be furnished by 7th July 2006. Therefore, the limitation for framing the assessment expired on 6th September 2006. Accordingly, in terms of Section 153(1) of the Act, the assessment made on 14th September 2006 was clearly barred by limitation. Thus the assessment was held to be invalid and annulled.

Aggrieved by the above order, the Revenue went in appeal before the ITAT. The ITAT dismissed the Revenue’s appeal. After analysing Section 153 (1) of the Act in light of the facts of the case, the ITAT concluded that CIT (A) was justified in holding that the assessment was barred by limitation. The ITAT held that the proviso to subsection 2C to Section 142 of the Act was prospective. There was no application by the Assessee for extension of time for submission of the audit report. Therefore, the ITAT held that the order dated 13th July 2006 of the AO purportedly under Section 142 (2C) of the Act granting extension till 17th July 2006 was not valid.

Contentions of the appellant Revenue:
It was submitted that given the purpose and object behind the insertion of sub-sections 2A, 2B and 2C of Section 142 of the Act, the period between due date for receiving the audit report and the actual date when the audit report was actually made available should be excluded for the purpose of computation of limitation. It was submitted that when there was failure by the assessee to submit the audit report within the stipulated time, the assessee should not be allowed to take advantage of its own lapse and claim that the assessment order was barred by limitation.

Observations made by the High Court:
The High Court bserved that the language of the statute is plain. Section 142(2A) of the Act anticipates timely submission of the report of the Special Auditor. The Auditor who is to conduct special audit in terms of Section 142(2) of the Act is not an auditor of the choice of the Assessee. The auditor is nominated by the Revenue and his work is not controlled by the Assessee. Where the special audit report is unable to be furnished within the time stipulated by the AO, extension of time can be granted by the AO on an application made by the Assessee. The extension has to be for good and sufficient reasons.

It was noted that from 1st April 2008 a proviso to Section 142(2C) of the Act was inserted which provides that the AO may “suo motu‟ extend the period provided that the aggregate period originally fixed and extended period would not exceed 180 days from the date on which a direction was first issued to the Assessee for submission of report of the Special Auditor.

It was an admitted position that in the instant case all the extensions granted, except the last one, were on the application of the Assessee. The last date for submission of the report in terms of these extensions was 7 th July 2006. There was no application by the Assessee after 7th July 2006 for extension of time

The Court observed that as explained in the case of Bishan Saroop Ram Kishan Agro (P) Limited (supra) the insertion of the expression “suo motu” in the proviso to Section 142(2C) of the Act was only with effect 1st April 2008. Therefore, in the present case, when the AO on his own extended the period of submission of audit report to 17th July 2006, he had no power to do so under Section 142 (2C) of the Act. Consequently, the Court found no error in the orders of both the CIT (A) as well as the ITAT holding that the submission of audit report on 17th July 2006 was barred by limitation

Regarding the contention that the time taken in submission of the audit report dated 7th July 2006 to the Department, i.e., the period between 7th July 2006 and 17th July 2006 should stand excluded. The Hon’ble Court distinguished the judgment relied upon by the Revenue.

Held:
There was no error committed by the CIT (A) or the ITAT in holding that the assessment order in was barred by limitation. The question framed was answered in favour of the Assessee and against the Revenue.

AO power to extend time for submission of special audit report
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Trust is entitled to deduction u/s 54F by fiction of section 161 despite that AOP is not individual or HUF – ITAT

Trust is entitled to deduction u/s 54F by fiction of section 161. Deduction can not be denied on the ground that AOP is not a individual or HUF – ITAT

Trust is entitled to deduction u/s 54F

ABCAUS Case Law Citation:
ABCAUS 1236 (2017) (05) ITAT

The Grievance:
The appellant assessee was aggrieved by the order passed by the CIT(A) in confirming the denial of deduction u/s 54F of the Income Tax Act, 1961 (‘the Act’) on the ground that the status of the assessee was Association of Persons (AOP) and the deduction u/s 54F is applicable only to ‘Individual’ or ‘HUF’.

The Issue:
Whether the assessee trust, which was for the sole benefit of an individual, will be entitled to deduction u/s 54F or not, when its status was that of Association of Person (AOP).

Assessment Year : 2012-13
Date/Month of Pronouncement: May, 2017

Important Case Laws Cited relied upon:
Mrs. Amy F. Cama vs. CIT
Raghunath Dass Sethi Vs. CIT
Niti Trust And Ors. vs. CIT
CIT vs. Deepak Family Trust
CIT vs. Shri Krishna Bandar

Brief Facts of the Case:
The assessee was a private non discretionary Trust in which husband and wife were the trustees of the said trust and their daughter was the sole beneficiary of the said trust. The said trust has sold 1000 unquoted equity shares for which part consideration was received by way of a flat. Adding to the value of the flat the charges towards stamp duty and registration charges, the assessee the assessee had claimed exemption u/s 54F.

The Assessing Officer (‘the AO’) held that deduction u/s 54F is allowable only to individual or HUF and not to any other person. It was held by the AO that since the assessee was a specific trust, it was not eligible for deduction u/s 54F and disallowed the same. The AO further held that the possession of the flat was not taken within 3 years from the date of transfer and therefore the appellant was not eligible for deduction u/s 54F.

Upon assessee’s appeal CIT(A) confirmed the action of the AO as regard holding that assessee being a AOP could not be granted benefit of section 54F. It was held that being AOP assessee could not be entitled to deduction u/s 54. As regards the issue regarding disallowance of deduction of u/s 54F on other aspect as held against the assessee by the AO,  those grounds were not adjudicated in view of the decision on the first issue.

Contentions of the appellant assessee:
It was submitted that the issue was squarely covered in favour of the assessee by the decision of Hon’ble jurisdictional High Court . It was further submitted that decision by other High Courts also support the assessee’s case. The assessee also placed reliance upon CBDT direction dated 01.08.2012

Contention of the Respondent Revenue:
It was submitted that cases relied upon by the assessee were not applicable. It was submitted that these case laws were with reference to the applicability of section 161 of the Act whereas the issue in appeal was regarding special provisions relating to Section 54F of the Act. It was submitted that it is clearly prescribed in the Act that Section 54F exemption will be applicable to individual or HUF. Assessee being AOP is not entitled to the said exemption.

As regards the CBDT circular referred by the assessee, it was submitted that firstly CBDT circulars are not binding on ITAT and secondly the said circular is mere direction of accepting of returns and the same could not be treated as direction to make assessment in a particular manner.

Observations made by the Tribunal:
It was observed that the Bombay High Court had elaborately considered the same issue while dealing with assessee trust’s claim for deduction for purchase price of the flat from capital gain as per Section 54 of the Act. The Hon’ble Bombay High Court had held that the assessee trust was entitled for the same.

It was observed that the Hon’ble Court had held that Section 161 of the Act makes a representative assessee subject to the same duties, responsibilities and liabilities as if the income was received by him beneficially. The fiction is created as it was never the object or intention of the Act to charge tax upon persons other than the beneficial owner of the income. Whatever benefits the beneficiary will get in the said assessment must be made available to the trustee while assessing him under section 161.

The ITAT observed that the decision of Hon’ble High Court squarely applied on the present case, which was concerned with the issue of exemption/deduction u/s 54F. Although, section 54 is applicable to individuals and HUF. However Hon’ble High court had expounded that on per the mandate of Section 161, the Act doesn’t intend to charge tax upon persons other than the beneficial owner of the income. Whatever benefits the beneficiary will get in a particular assessment must be made available to the trustee while assessing him u/s 161.

It was observed that in the instant case also the issue was benefit of investment made in purchase of flat for deduction u/s 54F of the Act by the trustees and the sole beneficiary of the trust is an individual. Hence the ratio emanating from the above jurisdictional High court decision is squarely applicable on the facts of the case.

The Tribunal observed that Hon’ble Gujarat High court had similarly granted benefit of assessment of a trust in the capacity of a individual. Similar views were expressed by the Hon’ble Calcutta High Court.

The Tribunal opined that based on case laws relied it was amply clear that by virtue of Section 161 of the Act, the representative assessee was subject to the same duties, responsibilities and liabilities as if the income was received by him beneficiary, and whatever benefits the beneficiary will get in the said assessment must be made available to the trustee while assessing him u/s. 161. It is only by virtue of u/s 161 that the trust has been assessed for the income that is for benefit of sole beneficiary.

Held:
It was held that the assessee was principally entitled to deduction u/s 54F and it could not be said that since it was a AOP and not a individual or HUF the said exemption/deduction should be denied.

Regarding merits of claim of deduction u/s 54F, the issue was remanded to the file of the CIT(A) for adjudication.

Trust is entitled to deduction u/s 54F
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